Department of Public Works 2011/12 audit disclaimer: hearing with Minister & Deputy Minister

Public Accounts (SCOPA)

20 March 2013
Chairperson: Mr T Godi (APC)
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Meeting Summary

The Chairperson congratulated Department of Public Works (DPW) for making available both the Minister and his Deputy for the interaction with the Committee. It was desirable to have Ministers appear before the Committee but this was not always the case. The need for the interaction was necessitated by the audit disclaimer that the Department received from the Auditor-General of South Africa (AGSA) for 2011/12. A significant number of issues did not read well in the report and from an oversight perspective warranted the session with the Committee.

It transpired that the financial statements and the performance information as contained in the annual report were extremely unreliable. The lack of internal controls was the root cause.

Members commented that the audit committee was key to sound financial management as it processed reports from the internal audit function. Why had officials not attended the audit committee meetings, it was asked.

Members sought clarity on whether the Department had a retention strategy that would ensure expertise was not lost. Members requested the answer to be contextualised in view of the fact that a long serving Chief Financial Officer (CFO) was allowed to leave.

The DPW replied that it was changing how it dealt with matters of the audit committee and how it related. There would be regular meetings that were mandatory to the executive management of the Department. DPW had a retention strategy that was structured within the limits of the Public Service Act provisions, but also government remunerated professionals satisfactorily. If a staff member was leaving, it was possible for the Department to counter-offer the package. The Department required highly skilled people and was therefore in competition for technically skilled staff and that would continue to be a challenge.

The Deputy Minister said that senior staff turnover was not just market related but required decisive action at times.

The Minister said that the previous CFO was asked to resign or face charges of misconduct. This was prompted by the financial state of the Department. This was the beginning of the process; one had to start right at the top. This would continue. The reality was that one had to put the right head in each unit or else the mess would continue unabated.

The Minister said that DPW would create a dedicated Professional Services branch, but generally, the human resources branch of public works was in shambles.

Members sought clarity on how governance responsibilities could be mandatory in senior management performance contracts, and how that could ensure accountability. Members voiced uneasiness with DPW’s decision to ask the previous CFO to resign despite evidence of financial misconduct. Nothing was decisive about this action, because the CFO was one of the reasons the system was broken. It was a weakness that officials found to have acted irregularly were allowed to work elsewhere in the public service.

The DPW replied, where failure had occurred, governance responsibilities would form part of the performance in each of the areas of the Deputy Directors-General (DDGs). Negative findings arising from the work of a DDG would form part of the governance responsibilities. Such negative audit findings would mean that a DDG had failed to fulfil, deliver and perform the departmental mandate. If there was irregular expenditure arising from such failure, and if there were serious deficiencies of financial misconduct, the DDG concerned would be responsible. If there were serious findings, the DDG concerned would “face the music”. It was also revealed that the CFO’s performance contract was in the process of being finalised.

It was further revealed that the scope of work the Special Investigating Unit (SIU) did for the Department primarily focused on leases and fronting. Currently the Unit was focussed on a lease amounting to R600 million. Another matter was ongoing in the Supreme Court where the SIU looked to set aside a lease to the tune of R139 million. Officials in the Department colluded with landlords. It had since been established that six premises were leased, and yet there was no occupancy. The Unit assisted DPW with compiling cases.

Members sought clarity on the finer details relating to expenditure in Nkandla. In the financial year under review was any money spent on the project, and how much was it? This was not a sensitive security matter and information could be relayed. The Committee needed a list of services that were provided to Nkandla, where, as claimed by the Department, there was suspected collusion. Members wanted to know if junior officials had being pressurised by politicians on the Nkandla project.

The Deputy Minister replied that the Nkandla project was not only focused on construction but on “a scope of work”. The security cluster identified all kinds of security measures to be taken. This was the challenge that the Department was faced with; it was not trying to cover up anything. DPW was ascertaining whether there had been inflation of prices, and there was a strong indication that indeed this was the case. This extended to some of the other prestige projects. The Department wanted to get to the bottom of the problem, but the opposition parties wanted clarity on the amounts, and that led to questions around what was it spent on. It would be difficult to get into that discussion without bringing in the security cluster for it to explain the technicalities. It was hard to complete the discussion in public. The challenge was the security considerations, but the question ought to be whether there were other motives covered up as security considerations. All projects of the Department – prestige projects, leases, border gates, renovations at ministers’ residencies, and Nkandla upgrade – had a trend of inflated prices. There were serious findings in Nkandla; it was clear that some of the supply chain management (SCM) processes were contravened. In view of the irregularities, the departmental report had since been referred to the SIU and the AGSA for consideration of further action. If professional groups acted unethical with regard to Nkandla they would be reported to their professional bodies. The trend in Nkandla was in all projects; this was where politicians should help instead of politicising the matter when it came to possibility of collusion in the construction sector. The total value for the project had since been revised to about R208 million, R2 million more than the initial figure provided. The Minister said that more information would be divulged in a special committee and not at the Standing Committee on Public Accounts (Scopa) where follow-up questions could even lead to the security of the head of state being compromised.

The Chairperson outlined the seven outstanding issues on which the Committee wanted the Department to provide a written response, and they included:

 

·                     performance contracts of senior officials, including the governance responsibilities of the DG, DDGs,   regional heads and CFO,

·                     structured policies relating to Property Management Trading Entity (PMTE), disposal, and state functions,

·                     classification and analysis of irregular expenditure, including Nkandla,

·                     list of policies; complete and approved, and those in the process of being approved,

·                     consultants and contractors involved in the computer services,

·                     measures put in place to curb excesses on compensation, and

·                     investigations, cases and the level of officials paid bonuses.

Meeting report

Opening remarks

The Chairperson congratulated Department of Public Works (DPW) for making available both the Minister and his Deputy for the interaction with the Committee. It was desirable to have Ministers appear before the Committee but this was not always the case. The need for the interaction was necessitated by the audit disclaimer the Department received for 2011/12. A significant number of issues did not read well in the report and from an oversight perspective warranted the session with the Committee.

The Auditor-General of South Africa (AGSA) had presented a general report to Parliament, highlighting a number of areas of concerns in departmental expenditure. The public works portfolio featured prominently on that report. The Committee was as a result interested in understanding why this happened. Whilst DPW’s slogan claimed “SA works because Public Works works”, the Department itself appeared crippled. The Committee would want to assist DPW deal with its challenges.

Members were entitled to ask on anything in the annual report, as well as those issues raised in the invitation. The Committee wanted to ensure that DPW moved in the right direction.

Officials on acting capacity

Mr N Singh (IFP) sought to establish if any of the officials were working in acting capacity. He clarified that the basis for his question was the tendency by officials to claim that they were not there when pressed with hard questions. It would be useful to know how many in the delegation were there at DPW or not during the time of the audit.

The Chairperson replied that the delegation consisted of three acting heads – regional co-ordination, infrastructure projects and asset investment management. The Director General (DG) had only assumed office at the beginning of the year (2013), whilst the Chief Finance Officer (CFO) had only been there for a few weeks.

The Hon. Jeremy Cronin, Deputy Minister of Public Works, replied that DPW was in Parliament to take collective responsibility, and would not as a result evade questions on the basis that officials were not there. Officials would indicate if they did not know something but all were in attendance to reply to issues.

Audit committee meetings

Mr R Ainslie (ANC) said that the session should help get to the root causes of problems of the Department’s yet again receiving a disclaimer. This was the worst audit outcome. The AGSA had said that the financial statements and the performance information as contained in the annual report were extremely unreliable. The lack of internal controls was the root cause.

The AGSA had defined the fundamentals of internal controls as leadership, financial performance management, and good governance. But all these ought to be underpinned by a good functioning audit committee. All these were lacking or extremely weak in the Department. He commented that he was disappointed that neither the author of the audit committee report nor a representative of the committee was present at the meeting.

The audit committee was key to sound financial management as it processed reports from the internal audit function. The report of the audit committee, as contained in the annual report, indicated that the executive management and the DG did not always attend meetings. He wanted to know who constituted the executive management team.

Mr Mziwonke Dlabantu, DPW DG, replied that the executive management team consisted of himself, the Deputy Directors-General (DDGs) from all units of the Department’s management structure, and also those few Chief Directors who did not report to any DDG.

Mr Ainslie asked why the officials had not been attending the audit committee meetings. Was there a commitment that the current leadership would attend those meetings?

Mr Dlabantu replied that the approach adopted had been revised given the enormity of the challenges. Members of the executive attended the meetings on the basis of need, meaning attendance was only warranted if there were line function issues that required a certain DDG to attend. In future, DDGs would attend the meetings regularly, including the DG. Such meetings were crucial in improving the governance of the Department.

Mr Ainslie said that the attendance register of the meetings should be included in future annual reports. He sought clarity on attendance by a Minister’s representative, especially since the report indicated that there was a permanent invitation to his office. Regular attendance would establish good relationship between the Minister’s office and those overseeing financial management at the Department. Was there commitment to send a representative to the meetings? Had the Minister been represented, and going forward would there be a need for representation?

The Hon. Thulas Nxesi, Minister of Public Works, replied that chairperson of the audit committee had complained about attendance. He had complained that the Department did not even provide guidance on some of the issues. The Minister’s office had made a commitment that someone from the office would always attend. This was already happening.

Staff turnover

Mr Ainslie commented that the AGSA had also observed that three DGs had operated in the period under review, and that the Department suffered from senior staff turnover. He asked if the Department had a retention strategy that would ensure expertise was not lost, as the report indicated that was the case.

Mr Dlabantu replied that it was important to give context to the interpretation of the percentage as quoted in the report. The Department required highly skilled people and was therefore in competition for technically skilled staff. DPW had a retention strategy that was structured within the limits of the Public Service Act provisions, but also government remunerated professionals satisfactorily. If a staff member was leaving, it was possible for the Department to counter-offer the package.

The Deputy Minister added that this was a market issue. People came and go as the market variables dictated. Senior staff turnover required decisive action at times. He said that ‘both the retention and the detention strategies’ were needed at DPW.

Mr Ainslie wanted, in light of the above reply, to know why the CFO had left the Department after a number of years of service.

The Deputy Minister said the question pertaining to the CFO matter needed to be related to what the Department was doing around criminal charges and disciplinary measures against senior staff.

The Minister added that it was always better to be honest and open with the Committee. Instability at leadership level was the main cause of confusion; without stability on top there could never be stability at the whole Department. After a number of years it was only now that there was a permanent DG. Given how technical the mandate of the Department was, DPW could not be led by acting officials or acting DDGs. This was instability of the worst order.

There was no clear strategy to retain technical professionals at the top level of the Department. This was the reason DPW wanted to create a dedicated Professional Services branch that would look at all professionals. The Department needed Chartered Accountants (CAs), property expert economists and lawyers and a whole range of other technical professionals. Recruitment drives were not well planned and often did not clearly indicate how professionals would be paid; there had been a poor strategy in terms of addressing skills retention. In fact, the whole human resources branch of public works was in shambles.

Previous audit committee assessment, and the CFO’s office

Mr Ainslie asked if the DG had been able to make an assessment of the effectiveness of the audit committee in the period under review. One of the challenges had been that the audit committee had not been functioning properly.

Mr Dlabantu replied that the terms of engagement from the previous committee came to an end during the audit period. A new audit committee had recently been appointed. Two meetings had taken place and the new members looked at issues raised last year.

He was certain given the skills of the new members that the work of the Department would improve. The members had asked for the action plans. It looked as though the new members would push the Department, and that would assist the DG in carrying out his tasks.

As part of restructuring, the head of internal audit had been elevated to a chief director level in the Department. Some funds were allocated during the budget process last year to strengthen the internal audit unit. The intention was to fill in the vacancies that were there. The audit committee would soon be reviewing the internal audit plan.

Mr Ainslie commented that he hoped the audit committee would take the Department to task, and that it would be well resourced. Hopefully the Department would also be responsive to the reports of the audit committee. He drew the Committee’s attention to the audit committee’s report where weaknesses in the CFO’s office were identified. DPW could not have an under-resourced CFO office. This office was as central to the Department as was the audit committee. He asked if the Department shared the assessment, and what was being done to strengthen the CFO’s office.

Mr Dlabantu replied the observation was indeed correct, and capacity in the CFO’s was one matter he sought to understand when he joined the Department. Fortunately the new CFO had been appointed successfully. The structure and the deficiencies were looked into, as well as other things that ought to have happened. Posts in the CFO’s office had been advertised following engagements with National Treasury (NT) on constraints of increasing compensation in the Department. It was agreed that this was priority area and all the vacancies would be filled soon. This was part of stabilising the office.

Mr Cox Mokgoro, DPW CFO, said it was important to view the CFO’s office in the broader structure of the Department. This was a fairly decentralised environment with about 11 regions. How the office was structured in terms of reporting and accountability was highly problematic. There had to be a fundamental relook at how things were happening. The weaknesses in the CFO’s office were symptomatic of how things were happening in the Department.

Mr Ainslie commented that the report spoke of the lack of business process and compliance with policies and procedures. The observation that there was inadequate action to deal decisively “with those who were not compliant” was concerning. He asked who those were, whether internal investigations had been done, and if the author of the report had been asked about these people.

Mr Dlabantu replied there were several meetings with the CFO around that issue. The conclusion that could be drawn was that there was a significant problem of internal controls and non-compliance. There were quite a lot of compliance issues that were raised by the AGSA.

Mr Ainslie commented that the Committee was interested in “those” whose work sabotaged the Department. Had there been an attempt to identify those people? There surely had to be an intention to understand who those were. The Ministry could only be as strong as the people around it.

Mr Dlabantu replied that, subsequent to the findings, culprits had been identified.

Mr Ainslie said that the audit committee had described non-compliance as culture in the Department. He said he understood it to be standard procedure at DPW that laws and regulations were disregarded, and asked that the work environment at the Department be characterised.

Performance contracts

Mr Ainslie said that the audit committee had suggested that the way of ensuring accountability was to include governance responsibilities in senior management performance contracts. He sought clarity and a comment on what governance responsibilities meant.

Mr Dlabantu replied that in environments where these situations had occurred, one would add the issues that related to audit outcomes, as part of the performance in each of the areas of the DDGs. Negative findings arising from the work of a DDG would form part of the governance responsibilities. Such negative audit findings would mean that a DDG had failed to fulfil, deliver and perform his mandate. If there was irregular expenditure arising from such failure, and if there were serious deficiencies of financial misconduct, the DDG would be responsible. If there were serious findings, the DDG “faced the music”.

The Chairperson interjected and asked what would constitute serious deficiencies.

Mr Dlabantu replied that serious issues related to matters of financial misconduct, as it pertained to wasteful and fruitless expenditure, and irregular expenditure.

Mr Ainslie suggested that the contracts of the DG and the CFO contain clauses that required achieving clean audits, or else “face the music”. How would the DG react to that?

Mr Dlabantu replied he was positive to that. This was a requirement.

The Chairperson wanted to know if the CFO had a performance contract.

The Minister replied that DPW was busy with that; when the first quarter ended the performance contract for the CFO should be ready. The Department had also engaged the Department of Public Service and Administration (DPSA) to second a person at DDG level to help review contracts of the DDGs, but also to factor in the issue of taking responsibility for financial management in respective units.

The Chairperson interjected and said that this ought to be the norm.

The Minister replied that this was supposed to be the norm but the Department was sitting with weak performance contracts.

Mr Mokgoro commented that every official in the Department had a responsibility to ensure that financial misdemeanours did not happen. Although the responsibility lay with the DG and the CFO, the majority of the findings came from line function. The Department could not under-estimate the responsibility of ensuring a clean audit outcome by all senior managers.

Mr Ainslie commented that the performance contracts had to specify consequences if milestones were not achieved. There had to be shift from pure accountability: consequences for not achieving needed to be spelt out.

Former CFO matter

The Minister said that there were consequences. The previous CFO was asked to resign or face charges of misconduct. This was prompted by the financial state of the Department. This was the beginning of the process; one had to start right at the top. This would continue. The reality was that one had to put the right head in each unit or else the mess would continue unabated.

Mr Ainslie commented that this kind of decisiveness was commendable if DPW was to move beyond the disclaimer. The audit committee report talked about action plan that had been developed to deal with previous year’s disclaimer. Complaints of slow progress had been made in implementing the action plan. Had there been plans to review the action plan this year, and why there was slow progress?

Mr Dlabantu replied that he had reviewed the plan and had started to cover some of the areas that had not been covered. Leadership gaps resulted in inertia, but that was addressed. Short term measures were in place to ensure audit outcomes received attention. The Department had put together a dedicated team for clean audit, which sought to deal with issues as raised in the action plan. At governance level, a dedicated task team had been instituted to deal with matters of governance, and clean audits on monthly basis. The progress on how the action plan was implemented was being monitored.

Dr D George (DA) disagreed with Mr Ainslie that firing the previous CFO was decisive action. Nothing was decisive about this action, because the CFO was one of the reasons the system was broken. It was a weakness that officials found to have acted irregularly were allowed to work elsewhere in the public service. He asked who the official was, and where she was at the moment.

The Minister replied it was Ms Cathy Motsisi, but he did not know where she was. He explained that under normal circumstance the Department would be keen to charge officials, but in the public service it took long to finalise cases.

The Chairperson interjected and asked what the problem was in the public service.

The Minister replied that it had to do with the laws in the public service; this was reality that had to be confronted. People even brought advocates to disciplinary hearings.

The Chairperson asked how the country had got to that stage.

The Minister replied that he did not know. Some of the protracted cases that the Department dealt with tended to be too costly. While dealing with these cases, the Department could not fill a post and had to resort to an acting person. Recruitment became a challenge when there was no job security; this was another aspect that had to be assessed when making a decision to replace someone. This might not have been the best way of dealing with the CFO, but DPW needed a quick exit for Ms Motsisi as she was not helping the Department.

Dr George commented that the law was complex and that the process was long. He understood the Minister to be saying the system did not work, and that posed a challenge because officials could change Departments knowing they would not be held accountable, but rather a quick exit would be organised. Somewhere a stand had to be taken to make the contract more tightly written.

Collective accountability phrase

Dr George sought clarity on ‘collective accountability’ as mentioned earlier by the Deputy Minister. Who was responsible within such an arrangement? He said the answer should be contextualised in the role of the previous Ministers at DPW when the mess happened. What had happened to them, or what would happen to them?

The Minister replied on the basis that DPW used the result of the investigations in the Department, mainly emanating from the supply chain management (SCM). He said that the investigations were initiated by the predecessors, and that he only had to act on them when he came in. Thirteen officials had been dealt with, but the process took their time. If investigations indicated contravention of the SCM those would be acted upon; 22 more officials were still being in the process of being disciplined.

Dr George commented that the tendency had been to take action against lower end level officials.

The Minister disputed the statement and said that a DDG was gone at DPW, but also that a former Acting DG was undergoing disciplinary action.

The Deputy Minister clarified that when dealing with senior management it needed to be borne in mind that these were no ordinary workers, but senior public servants. Was the labour legislation applicable in the same way as workers’ rights? Members should be clear that the problems were occurring at senior level. Was the legislation appropriate to ensure that senior level officials were dealt with accordingly?

Dr George agreed and said at senior level the pay was different and the scope of work was greater. People working at that level should have a set of rules that applied only to them. There was no reason why, for example, a DG’s contract could not specify that if he or she failed to implement, then he or she would face the music.

Dr George clarified that he meant political accountability. He said that the response did not provide much on that aspect. Were the previous Ministers held accountable, either by Cabinet or the President?

The Chairperson commented that, according to the Public Finance Management Act (PFMA), officials who had left the public service, having committed acts that amounted to criminality, were pursued through the law enforcement agencies. But for those who had infringed the rules, but not to the extent of criminality, there was no way that one could punish such people. The PFMA prescripts were only applicable while the official was at the Department. He said that he was not sure how such officials could be followed and made accountable in law once they had left the Department for the lapses or omissions that they might have committed.

The Minister replied that, regardless of the office of the person, if any person was criminally implicated that should be followed. The predecessors showed accountability. The high level cases DPW was acting on now were instituted during their time of office. The previous Minister had identified the problems and approached the President. The investigations would take their time. The Department sometimes got frustrated with the investigations but had no other way but to be thorough. Fast tracking cases for senior management had come to the attention of Cabinet, and DPSA was looking into the matter because it frustrated other departments.

Quarterly report, assets and compensation for employees

Dr George commented that the report spoke of a system that had collapsed. There was evidence that basic pillars of finance were not there. There should be an internal audit function that should test what went on in the Department and report to the audit committee. That did not happen. The audit committee in return should be managing reports and making commentary to management. Management should make corrections to what the audit committee found, and then that should lead to quarterly reports. This process could assist the AGSA, when the time to audit came. He asked if the quarterly reports were being done now.

Mr Dlabantu replied that quarterly financial were not being done. He said that he had to go through and identify the weakness in the whole finance division. By 01 April, DPW would ensure these things were done; some of them were standard procedure in financial management processes. The Department was putting in place measures that would ensure that these things were happening. They would now form part of quarterly reports. This was reason to deal with the structure that existed in finance during the time of the previous CFO.

Dr George commented that the coming financial year would not be looking good in terms of audit reports. He sought clarity on a finding that there were no proper controls to safeguard assets. Why was this the case?

Mr Dlabantu replied that the AGSA identified the areas, and the audit committee acknowledged that this had indeed been the practice in the Department. There were these weaknesses that existed, indeed the findings were correct. DPW had the action plan to deal with this. The issue on assets related to immovable assets and would take time to finalise. He said that the Department would not resolve all issues of the immovable assets register until around 2017. This was due to matters not in the control of DPW, but other departments.

Dr George sought clarity on the compensation for employees’ budget that was exceeded. He asked if the finding related to extra salaries and bonuses; if this related to bonuses, had there been any action on those who unduly received.

Mr Dlabantu replied that, since his arrival, he had requested a full analysis of what the contributing factors were to exceeding compensation budget. It was important to note that the Department had serious contradictions with regard to compensation. It lacked on key skills that it required. Secondly, over a period of time the Department relied on skills that did not relate to its core mandate. Appointments were largely driven by requirements of the day. Thirdly, it was the issue of proper costing of the resources that were there; this was the combination of these.

The Chairperson and interjected and requested that the answer be simplified, as the question was specific. The Department had exceeded the budget for compensation of employees; the essence of the question was how did it happen and why?

Dr George added the substance of the question was to establish whether bonuses were paid to senior officials despite not meeting the milestones, and if such money could be recouped.

Mr Dlabantu replied there were no bonuses paid to senior executives.

Mr Mokgoro replied that overexpenditure on the budget of compensation was a question of honesty. The Department had a very high vacancy rate; there were a lot of contract people and positions that were not on the structure.

The Chairperson asked how contract people were accommodated if their positions were not on the structure.

Dr George commented that money was paid to people but was not clear if they were on the payroll.

The Minister commented that the DG had spoken of skills mismatch. The way people were appointed was not in line with the core functions of DPW. He cited an example where an engineer was wanted, but a teacher was appointed. Shifting people around when they had failed was costly to the Department. One of the problems was the human resources (HR) at the Department but also the tendency of redeploying when people failed. As long as underperformance was not dealt with, this situation would be a challenge. He said that Government seemed to be afraid to address the matter.

DGs failure to manage expenditure

Dr George said the next item was expenditure management. It talked a lot about the accounting officer; if one read all of the section, the accounting officer clearly did not do his job. He asked who the accounting officer was, and if criminal charges were pressed.

The Minister replied that Mr Mandla Mabuza, Ms Mandisa Fatyela-Lindie, and Mr Sam Vukela had all acted as accounting officer. Mr Vukela had been subjected to an ongoing disciplinary process. Prior to him it was Mr Sivuyile Dongwana. In such situation it was difficult to pin down a particular person; as long as there was no stability at the top leadership level. There had never been a permanent DG at DPW since 2008. Once criminal charges had been preferred, arising out of the Special Investigating Unit (SIU), such cases became a matter for the police.

Dr George commented that there were laws in the country and that there was no reason that any of the four officials should not be prosecuted; they should be held to account on what they failed to do. Prosecuting the officials would deter them from accepting jobs they could not do, and also would demonstrate the willingness to do something about such transgressions. The haemorrhaging could not continue like this as everybody agreed. He asked if investigations relating to financial misconduct had started or if were happening at all.

The Minister replied that nine criminal cases had been opened and senior officials had been expelled, including a DDG and directors in the Gauteng province. This was not at the pace DPW would have loved. The Department would love to have a risk management branch where its own investigative capability was developed. This would ensure that not everything was referred to the Special Investigating Unit (SIU). The idea had also been mooted by National Treasury. These were processes that the Department undertook in trying to fast track the cases; but investigations necessitated that one was meticulous, especially that these were matters of law.

Ongoing cases and Nkandla

The Chairperson requested that the SIU talk to the nature of the cases it was investigating and the volume of work. Would the country be sitting with investigations that last forever; what were the timelines, he asked?

Mr Paul Modipa, SIU Acting Projects Director, replied the investigations were two-phased. There was a focus in terms of the phase one and two. The Unit had received a referral from the Minister about the prestige accommodation and it would be part of the phase two. There would be no permanent investigations at the Department; there had to be timelines. The SIU would assist DPW with the turnaround strategy, especially as it pertained to financial deficiencies. The Unit could not do all the things it was asked to do for the Department.

The Chairperson sought clarity on the statement that the Department would be assisted with the turnaround strategy.

Mr Modipa replied that the turnaround strategy talked to the financial deficiency that the Department encountered in terms of where financial regulations were not followed.

Ms Noami Shivali-Jose, SIU Programme Manager, replied that the Department had identified irregularities in the procurement space. The proclamation was fairly wide. The Department would refer matters to the Unit, and these would in turn be investigated. Leases were the primary focus, and currently the Unit was focussed on a lease to the tune of R600 million. The Unit was currently engaged in issues of fronting.

There was an ongoing matter in the Supreme Court where the SIU looked to set aside a lease to the tune of R139 million. Officials in the Department colluded with landlords where they leased six premises and there was no occupancy. The Department had been instructed to sue to the tune of R28 million.

As matters were picked up they were indicated to the Department. The Unit assisted DPW with compiling cases; there were senior people like the DDGs, and currently a head of property management was suspended. The Unit was looking at the DDG of the prestige portfolio. SIU was sending out a strong message that nobody was untouchable within the Department, and also was giving systemic recommendations. The reason corruption was happening was because there were gaps in the system that were opened to abuse.

Dr George asked if there was any expenditure on Nkandla, President’s own homestead, in the period under review, and how much that amount was.

The Chairperson asked that issues that were covered in the report in relation to non-compliance be dealt with first. He requested that the issue of Nkandla be dealt with at a later stage and in the context of the annual report as opposed to dealing with it as a separate matter. The SIU spoke about the head of the prestige portfolio that covered a wider margin than Nkandla. He requested that follow up questions from Members be taken.

SITA performance

Ms T Chiloane (ANC) sought clarity on the computer services. The report indicated that there were State Information Technology Agency (SITA) computer services and those that were external to the total amount of R48.4 million. How were these differentiated? She also sought clarity on the advisory contractors, and asked if the list of such contractors could be provided to the Committee.

Mr Dlabantu replied that DPW had not brought the list of contractors. With regard to business advisors consultants would be appointed on technical areas like the contracts register to Enerst & Young. The consultants were appointed as a result of DPW’s having received a finding that could not have been addressed with the internal resources.

The matter of the Property Management Trading Entity (PMTE) related to having an incomplete asset register. Some related to not having a proper policy in place to account for the assets. He said there were no details on the SITA question, but there would be contracts that historically provided business to the Department. SITA did not deliver on own resources sometimes, but outsourced services. In some cases departments were frustrated with the performance of SITA. Details would be forwarded to the Committee.

The Minister commented that there was information that some system was procured for assisting the Department to generate accurate reports drawn from various systems used by it. An agreement was entered into, with SITA, years back to procure the software. Somebody signed an agreement and approved for the payment of R40 million prior to the product being delivered or implemented. The matter was investigated by the SIU and was 95% complete

The Chairperson asked which company that was.

The Minister requested that the names be not revealed for the purposes of the investigations.

General discussion

Ms S Mangena (ANC) commented she did not even want to discuss Nkandla, but Members had to wait the outcomes of the investigations around it. She said that it worried her that the CFO was forced to resign. She said that the Department should have prosecuted even if it took three years to finalise.

The Minister replied that, in terms of the law, officials had an option to walk away so long as their misconduct did not amount to criminality.

Mr Singh wanted to know if the statement happened in practice. He commented that information and communications technology (ICT) was bedrock to proper management. What comment would the Department give on the ICT environment within DPW?

Mr Dlabantu replied the ICT environment at DPW was very weak. This was confirmed by a report issued by the internal audit unit, but also correlated by a report issued by the AG. In this instance as well there was a vacancy at a critical level. The position was advertised and had already been filled. It had been identified that the whole ICT strategy needed to be reviewed and reconstructed with regard to the nature the Department wanted to do business. The ICT environment was particularly weak in the area of asset management.

Mr Singh asked if the organogram was linked to the vision and strategic objectives of the Department. He believed this was not the case. He asked if the Committee’s (Scopa) resolutions relating to investigations had been implemented. Had the investigations been completed, and what was the status of the investigations? Did the scope of the investigations include the recovery of money where there was undue enrichment, not only from the officials but also service providers?

The Minister replied that criminal cases opened dealt with people who had resigned, but details would be availed as the cases progressed. The Department did not just ask the SIU to look at the question of violations, but was also looking at how money would be recovered.

Mr Singh asked what kind of initiatives would ensure that the prescripts of the PFMA would be followed.

Mr Dlabantu replied that there were constant engagements with National Treasury, and it also participated in the structures and the turnaround. National Treasury had also deployed officials from its Technical Assistance Unit (TAU) to assist DPW. Such engagements were working.

Mr Mokgoro said that interactions with National Treasury were strong in terms of seeking guidance at all times, especially in respect to procurement services. The engagement examined the public tenders, bid adjudication and evaluation. National Treasury observed the processes and ensured they were not compromised at all. The Department had been selected to run a pilot on the processes of the SCM policies together with the Department of Health (DoH). This would assist the Department in bringing it closer to achieving objectives.

Dr P Rabie (DA) sought clarity on the number of officials that were doing business with the Department, and said a list had to be compiled and availed to the Committee.

The Chairperson commented that the list was on page 285 of the report, but the question ought to be what had been done about the cases, and if any other official had been fingered. There needed to be an indication on whether these officials had declared their business interests.

Mr Dlabantu replied that the list was longer than the six, and, based on the investigations, actions would be taken against those DPW believed had to be dealt with.

The Chairperson wanted to know why the six were in the annual report, and asked if their cases had been looked at and finalised.

Mr Dlabantu replied that the inclusion of the six did not mean they were guilty of conflict of interest. They were required to disclose if any relation of their relatives had interest with BMTE. In most cases the disclosures related to spouses, parents and in-laws. They disclosed at the time the financial statements were prepared. The list the Member was referring to was much longer and was part of the investigations.

The Minister said that there were two lists: one from the SIU that referred to 25 people, and 20 of the people were no longer with the Department; there was another one from the Public Service Commission (PSC). The one from PSC was a long list. DPW was looking at those and start the disciplinary proceedings, but the challenge was that the Department had been forced to prioritise certain cases. Undertaking them all at once would have been a challenge as the Department lacked resources, but all these were on the agenda.

Ms M Mabuza (ANC): Chairperson of the Portfolio Committee on Public Works, sought clarity on the 40 cases that were investigated by the SIU. Recommendations on 13 of those had since been implemented. She said she worried about the Braamfontein (Johannesburg) lease where two officials were implicated. How would the Department retrieve the millions lost particularly on unoccupied properties, while officials had resigned?

The Minister replied that the details of the leases were with the Department. Officials concerned were facing criminal cases and disciplinary proceedings. Regarding the 40 cases that the SIU had undertaken, 13 were complete and recommendations were in the process of being implemented. DPW believed that if there were criminal implications, even if someone had left, those had to be followed. In some of the cases summons had been served on the contractors; they would not just get lost in the process.

Ms Shivali-Jose said the Braamfontein matter would financially affect the National Prosecuting Authority (NPA) and the SIU as they would not have the kind of resources required. The landlord had over R3 billion in assets. The SIU also waited for the South African Police Service (SAPS) to effect arrests before it could issue a preservation order on the total value of the leases. The SIU was not only interested in criminal cases but worked with the Department to stop contracts, tried to recover money and prevent future losses to the Department.

Ms N Ngcengwane (ANC): Portfolio Committee on Public Works, commented that the Portfolio Committee used to receive quarterly reports from the Department and it was shocking to hear an allegation there was never any quarterly reports. She sought clarity on the irregular expenditure and the bonus that the report indicated were paid out.

She asked the Minister to explain where the problem was with Nkandla and the prestige projects.

Mr Dlabantu replied that quarterly reports were provided on quarterly financial statements in the form prescribed by National Treasury for quarterly interim reports. DPW provided financial reports on performance expenditure for the quarter and variances.

Mr Dlabantu said that the Department had written to the SIU regarding the records that were lost, but also had requested the AGSa to go on site and audit those records.

The Chairperson sought clarity on whether DPW suggested the SIU lost its records.

Mr Dlabantu replied that it sounded like a deflection. He said that no bonuses were paid to the executives; the figure quoted only related to the normal employees from level 12 downwards.

The Chairperson commented that he found it strange that over 50% of employees got bonuses despite the Department’s having achieved a disclaimer. And yet these were rewarded for good performance.

Mr Ainslie commented that the Committee was satisfied with the emphasis on investigations of high profile cases. DPW needed not loose track of the small cases that pertained to internal discipline. He commented that he was loosing track of the number of cases investigated and how far back such cases dated. Officials were giving conflicting figures and Members did not get feedback on those investigations. The Committee was also concerned with the success rate of the investigations.

Mr Ainslie said the Committee needed to get a report on the ongoing investigations and who conducted those. Hopefully, the Department would make a consolidated list of all cases of investigations. He asked if the Department was keeping track of all the cases, and suggested that it would be ideal in future annual reports to list cases and how they were finalised in respect of the transgressor and the sanction.

The Chairperson requested that the Department look at the irregular expenditure as found by the AGSA and make a classification by amounts. The information needed to be broken down and forwarded to the Committee; it should detail such information as what happened, and who the concerned contractors were.

Mr Dlabantu said that the CFO was already working on that but availing such information in the format required would take about a month.

Ms Chiloane wanted to know whether policy regulating the structure of the PMTE was in place, especially as it was indicated in the last meeting that there was none. She sought clarity on the disposal policy, as it was one among issues that led to the disclaimer. She also asked if the Department owed any municipalities by way of rates; municipalities struggled as a result of departments not paying. The unserviced debts by Government departments hampered service delivery resulting in suffering by the poor.

Mr Dlabantu replied that the Department had proposed a structure that sought to resolve the matter. The day before, a proposal on what had been done about this had been presented. In the coming financial year most of the issues that impeded the efficient functioning of the structure would be complete. The disposal policy proposal arrived in his office in February. After scrutiny, it was realised the issue was not urgent but its absence would impinge on the work of the Department. There was a draft and it would be concluded before the end of the year, subject to the Minister’s approval.

Mr Mokgoro replied that at the Forum of South Africa’s Director Generals (FOSAD) a report was presented by National Treasury on the debt owed by departments to municipalities. The total debt was about R3.5 billion, and DPW was appointed to co-ordinate the resolution of the debt. The process to deal with this had already started.

Ms Chiloane said that R3.5 billion was too much money and those municipalities were threatening to cut services. This was a matter that needed to be attended to urgently.

Ms Ngcengwane commented that the SCM policy was still not updated; there were still procurement deviations that crept in. How soon could that be resolved, because as long as was not resolved there still would be problems?

Property Management Trading Entity (PMTE) and the disposal policy

The Chairperson said that the issue of the PMTE had been on the table for some time and it needed to be concluded. The Committee and the Department should interact on the milestones so that progress was made. In the absence of policies people could do as they pleased. It was important that the Committee was furnished with departmental policies that were there, either completed and approved or those in the process of being proposed.

Absence of policy might be the reason for some of the things that were happening especially on the issue of the prestige portfolios, and the renovations that seemed more expensive than the ministerial houses. Was there policy around renovations? How many times was a house renovated? Was there policy around that? The Department seemed to operate on its own outside of National Treasury guidance. This would address the work that public works had done in respect to the home of the President, but also extended to the issue of disposal.

He said that the claim by the Minister of bloated figures led him to believe this was not an isolated incident; this was widespread and long established practice. How did this link to the Department pertaining the role of the bid adjudication committee? He said that he was aware that the renovations to the President’s home would be referred to Parliament. Where was the Department on this matter, and what was happening?

The Deputy Minister commented that the PMTE was a decision of Cabinet dated back to 2006. The idea had been to establish an account, and not a trading entity that was properly staffed and equipped. The question about the organogram being properly constituted to manage the core mandate of the Department was critical. The core mandate was to manage this massive property portfolio that was much larger than Investec or Old Mutual.

The Department was not shaped correctly in terms of the organisation of managing the portfolio. DPW had presented to the Portfolio Committee the day before in terms of what it was doing in the actual policy around the PMTE. The proposal would be tabled in the third quarter to Cabinet. In the short term the Department looked to establish an entity inside.

The Disposal policy was being attended to and would be finalised within the short period. It was not as though there was no legislation guiding the Department, but a tighter policy needed to be developed in this area. He agreed there was lack of policy on renovations. The Department was subject to bullying by politicians. There were huge anomalies and a number of grey areas. He said that part of the problem with the cost of the prestige projects had to do with the fact that they were heritage sites.

Nkandla ghost loomed large

The Deputy Minister clarified that the challenge with the Nkandla project was that it did not only focus on construction but a scope of work. What happened was that the security cluster came in and looked at all kinds of security measures to be taken. This was the challenge that the Department was faced with; it was not trying to cover up anything. DPW was ascertaining whether there had been inflation of prices, and there was a strong indication that indeed this was the case. This extended to some of the other prestige projects.

The Department wanted to get to the bottom of the problem, but the opposition parties wanted clarity on the amounts, and that led to questions around what it was spent on. It would be difficult to get into that discussion without bringing in the security cluster to explain the technicalities. It was hard to complete the discussion in public. The challenge was the security considerations, but the question ought to be whether there were other motives covered up as security considerations.

The Minister said that DPW did not have problems with issues of accountability and PFMA when it dealt with projects including Nkandla. The challenge was once the tone veered off compliance into becoming political. DPW could not play politics with the security of the head of state.

He was not comfortable with the turnaround strategy that he announced last year because overuse of the term had made it redundant. Reconstructing was much better. The strategy to reconstruct the systems at the Department was announced to deal with corruption and maladministration. All projects of the Department – prestige projects; leases; border gates; renovations at ministers’ residencies; and Nkandla upgrade – had a trend of inflation of prices.

There were provisions in legislation that governed deviations. The consequent of lack of policy led to corruption; that opened the system for exploitation. Junior officials were most vulnerable to demands from senior people.

One of the terms of reference in the procurement of materials in Nkandla was to ascertain whether the prescripts of SCM were followed to the latter in the project; or whether there were any deviations from above; and determine if the deviations were in accordance with the procedural prescripts. There were serious findings in Nkandla; it was clear that some of the SCM processes were contravened. In view of the irregularities, the report was referred to the SIU and the AGSA for consideration on corruption issues and the supply chain issues respectively.

If there were professional groups who acted unethically, they had to be reported to their professional bodies, while the Department attempted to recover the money. But if the DPW’s own officials contravened the processes, internal disciplinary measure had to be instituted. These things could not be just rushed in view of the trend where people came with advocates in disciplinary hearings. DPW was on top of compliance issues, and would have to review delegation on bid adjudication committees. This was an experience. The trend seen in Nkandla was a trend in all projects; this was where politicians should help instead of politicising the matter when it came to possibility of collusion in the construction sector. He said that indeed compliance issues were at the heart of the problem in Nkandla.

The Minister said that in the absence of norms and standards the country would sit with such problems as renovating ministerial homes. There had to be clear norms and standards; these were basic things and they reflected back on Government. Corruption knew no colour; the tendency had been to sensentionalise things regarding Nkandla simply because black contractors were involved, and yet there were scary stories emanating from white companies in the Western Cape. There just had to be consistency when dealing with these things.

It might be good to frequent the Standing Committee on Public Accounts (Scopa) in Parliament if things were to be turned around. The process of turning around the Department should be a function administered at the DG’s office, as the DG was a permanent official. Ministers changed frequently, and programmes got changed without achieving the objectives.

Dr George commented that the Committee needed to invite consultants and ask them questions. Consultants made a lot of money out of government because the systems were not in place. He said that he understood all the explanation about the compliance issues around the issue of Nkandla. In the financial year under review was any money spent on the project, and how much was it? This was not a sensitive security matter.

The Minister replied that the total figure of R206 million, given earlier, had since been revised to about R208 million; the breakdown of the period in which the money was used could be given at a later stage.

Mr Singh commented that the Committee needed a list of services that were provided to Nkandla, where the Department suspected collusion. In the context of what the Deputy Minister had said about junior officials being pressurised by politicians, he asked if an indication could be given as to whether this was the case in Nkandla. He suggested that collusion be considered as well on the building of schools in the Eastern Cape. There was collusion happening in the province, because prices for building classrooms multiplied by sometimes up to ten times. It was a breath of fresh air that much emphasis had been put on compliance matters by both Minister and Deputy Minister.

The Minister replied it was easy for an official to claim expensive purchases under the guise of acting to a Minister’s order. Some people could use this pretext even if they had done something wrong. The issues regarded procurement, and pressure did not occur in Nkandla. The upgrades were recommended by the security cluster.

He said that if more answers were provided with regard to Nkandla then one would start to deal with questions surrounding the actual security. More information could be divulged in a special committee and not at Scopa where there would always be follow-up questions. The Department was ready to give the specific details in a special committee.

The Chairperson asked if DPW had ever dealt with a situation where officials had to act from demands from Ministers that would reflect the absence of policies.

The Minister replied ‘yes’, this always happened. What would resolve this matter was clear policy.

Ms Ngcengwane commented that there also had to be a clear policy around state functions like funerals and presidential functions.

Conclusion

The Chairperson outlined the seven outstanding issues on which the Committee wanted the Department to provide a written response, and they included:

 

·                     performance contracts of senior officials, including the governance responsibilities of the DG, DDGs, regional heads and CFO,

·                     structured policies relating to PMTE, disposal, and state functions,

·                     classification and analysis of irregular expenditure, including Nkandla,

·                     list of policies; complete and approved, and those in the process of being approved,

·                     consultants and contractors involved in the computer services,

·                     measures put in place to curb excesses on compensation, and

·                     investigations, cases and the level of officials paid bonuses.

These would form the basis for the interaction today going forward. A formal letter, indicating these items, would be written to the Department.

Closing remarks

Ms Mabuza commented that the Minister and Deputy Minister speedily address the appointment of professionals in the Department as the situation of having teachers inspecting construction projects was untenable.

The Minister commented that the 50% of employees getting bonuses were low level workers. It was sometimes difficult to punish them, by not giving bonuses, while the challenge was on top management structure.

He said would have preferred to hear the AGSA’s officials comment on their refusal ‘to lead evidence’ on some of the cases the Department was involved in. There was resistance from the AGSA’s office. It claimed to be an independent structure; where did the independence come from? When used as evidence, the reports should be presented by the AGSA, and not by the same officials who were involved in contraventions. It might be important that Parliament helped the Department there.

The Chairperson commented that such a discussion needed to be held with the office of the AGSA at the highest level.

The meeting was adjourned.

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